March 7, 2010

Analysis: Lifting spending mandates part of budget tug-of-war

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By Len Lazarick
Len@MarylandReporter.com

The tug-of-war over state spending was on vivid display at the State House Wednesday, with most of the participants tugging for more money or less cutting, but there were also some significant yanks for fiscal restraint.

Private school children in plaid skirts and uniform ties rallied for business tax credits for contributors, hoping to nibble a few crumbs from the table of massive state aid to public schools. The developmentally disabled, advocates for the mentally ill and for expanded health coverage were chanting “10 cents makes sense” – hoping for a dime hike in alcohol taxes to expand funding for their programs.

Earlier in the day, a dozen officials from counties big and small pleaded with legislators not to make any more cuts to local aid. And an intrepid band of about 30 people from Americans for Prosperity gathered at the Miller Senate Building to show their support for lower taxes and spending.

“We have to live within our budget,” said Joanne Gober of Annapolis, who works for her family’s granite business. “I think Maryland government has to live within the budget they have.”

At the hearing on the budget reconciliation act upstairs, the AFP folks were far outnumbered by lobbyists with their hands out. Dave Schwartz , executive director of Maryland AFP – the TEA-party organizers – said he had signed up his folks an hour and a half before the hearing started, but they were already on the fifth page of the witness list. The AFP folks – “tea baggers” to those on the left – didn’t get heard until almost five hours into the hearing. That was too late for Phil Parenti, president of the Southern Maryland AFP chapter, to stick around and testify that the state ought to cut its spending the same way he’s had to do at home.

“I have a problem with the raids on the special funds,” Parenti said. More than $500 million in one-time swaps from special funds help balance the fiscal 2011 budget following $700 million in transfers from 55 funds in the current year’s budget.  Who knew that the state Board of Dietetic Practice ($3,700) or the acupuncture board ($9,600) had loose change to spare to contribute to the deficit solution?

The AFP, which tends to be vague about what it doesn’t like except waste and abuse, actually had potential allies in the legislative staffers who testified hours before them.

Fiscal analysts are recommending that funding be cut or frozen for a whole series of “mandates” that have sought to force governors to spend money on programs favored by legislators. Some of the mandates would be level funded for just fiscal 2011 and 2012, but others would remain frozen indefinitely. More than half the general fund budget is driven by these mandates.

Even Gov. Martin O’Malley is going in that direction. He’s freezing aid in fiscal 2011 and 2012 to community colleges, private colleges and universities, tourism, local health grants, police aid and the arts. O’Malley is even proposing that the Budget Reconciliation and Financing Act (BRFA) – the annual mechanism for mandate relief – allow him to freeze any other mandate except for certain education and retirement formulas.

The Department of Legislative Services has long tried to rein in the growth of the proliferating mandates. I did a long research paper on the need for mandate reform for the Free State Foundation last spring.

But the Department of Legislative Services was on the case long before that and structural deficits offer an opportunity to press it further.

In the case of the aid to community and private colleges, for instance, the legislative staff wants not just to freeze funding but permanently reduce it in the out years. The recommendations would also cut tourism funding for the long term, along with aid to the Maryland Arts Council. The council “escapes unscathed” from this year’s budget cuts, said Warren Deschenaux, the legislature’s chief financial guru. He believes this year’s budget cuts are “an experience that should be widely shared.”

In addition to reducing 18 mandates that O’Malley has proposed, DLS is offering 10 more mandate cuts. These include cuts in aid to Baltimore City for highway aid and other purposes, a $60 million cut in education aid, and a permanent freeze on library grants.

At the hearing, Deschenaux noted the recurring theme of his staff’s recommendations — “leave things where they are in the current year and extend them out indefinitely.”

This “mitigates what happens beyond 2012,” he said. In other words, freezing mandated spending stops digging the deficit hole deeper.

Typically, the legislature has only lifted the mandated spending a year at a time, restoring the formulas the following year.

But that “exaggerates our fund problem,” Deschenaux said. In projecting future deficits, DLS must respect what the law says about mandated spending.

Not extending the frozen mandates and other cuts “ makes it look even worse than it really is,” Deschenaux said. If you don’t hold down mandated spending, the deficits stay large for the rest of the term of the governor elected this fall.

The subcommittees of the Senate Budget and Taxation Committee begin making their decisions on the proposed budget this week.